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Hi. In this question c, I didn’t understand know did the examiner came up with $84500,$75500,$38000.
Revenue/day = 1,600,000/365 = 4383.56
Receivables = 260,000
Collection period (current) = 260,000/4383.56 = 59.31
Reducing this to 40 days will raise 4383.56 x (59.31 – 30) = 128,482 (ie 128,500 when rounded)Purchases/day = 1,375,000/365 = 3767.12 (assuming inventory is level)
Payables = 75,000
Payables days = 75,000/3767.12 = 19.91If increased to 40 days, additional cash would be retained amounting to
3767.12 x (40 – 19.91) = 75,681 (which I assume is rounded to 75,500)
If increased to 30 days
3767.12 x (30 – 19.91) = 38,000
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